The crisis in Europe and the Euro is not a surprise to students of economic history. Never in history has there been a sustainable single currency that crossed sovereign boarders. The Euro was intended as a big first step forward on the road to European economic and political union. The reality is that a unified currency cannot survive without political union. The vulnerability of the Euro as a single currency is the same as any fixed rate currency regime or a gold standard for that matter. If sovereign countries, as the term implies, have independent fiscal policies, labor policies, and overall economic policies then those more profligate countries will pressure a currency that they have no control over. This has happened throughout the monetary history. Indeed, it is why there are no fixed rate currencies regimes today, nor a gold standard. For all the insistence by gold bugs that a gold standard will prevent these sorts of crisis’s that occur from fiat money printing, it is precisely the pressures that printing money relieves that make fixed rate regimes unsustainable. Governments have an uncontrollable appetite for money and the theoretical discipline of fixed rate regimes is no match for politics.

So too is the Euro’s fate. The European crisis will not go away until either the Euro goes away, or there is real political and fiscal union. Look at the embattled Euro countries of Greece, Italy, Spain, etc. If either country had the ability to devalue their own currency much of the pressure would be relieved from their government budgets. The pain would be transferred from the Greek people to the holders of Greek bonds and Greek currency.  This is not to say that the crisis countries don’t need to clean up their act. In the short term they will be denied access to the markets until there is real economic reform.  And as markets tend to do, over react, Greece would become cheap thus attracting capital at the new prices. Even Greece would return to the markets, just as Russia did following their default in 1997, and prosper, as Asia has since its currency crisis in the late 1990’s. In the short term devaluation buys much more time and mitigates the pain and disruptive effects of domestic adjustment that is being witnessed today.

Spain’s youth unemployment is in excess of 50%. Italy and Portugal also are realizing excessive unemployment. Beyond the seemingly cavalier attitude that they brought it on themselves, this level of unemployment is destabilizing to a country. The unemployed will increasingly view themselves as having nothing to lose and no stake in the current government and economic regime. It was out of such extreme economic circumstances that grew the destructive nationalism of the early part of the twentieth century. It is not too incredulous to see a more violent failure of the Euro and the rise of less tolerant governments in those countries that feel wronged by the world. It happened not so long ago.